Are Yours? Do You Even Know It is Happening?
One website that is growing in popularity for advisors is Yelp.com. The ability to list your business and have people leave reviews is very tempting for advisors to use in hopes of gaining new clients. Unfortunately the use of Yelp is in direct violation of the SEC’s “Testimonial Rule” under the Investment Advisers Act of 1940.
Recently, the Securities and Exchange Commission charged three advisers and a marketing firm for violating the testimonial rule by promoting their business on Yelp. These three advisors worked with a marketing company to solicit testimonials from clients asking them to post their reviews on the investment adviser's behalf to Yelp and other social media websites. Each of these advisors were fined $10,000. The marketing firm received cease-and-desist orders and were required to pay civil penalties of $35,000.
YouTube is another platform that is rising in usage by advisors resulting in violations and fines. An Illinois-based RIA, was fined $15,000 for creating a 31-minute-long YouTube video that featured testimonials from multiple clients. The video was published on their public website and YouTube.com, and was shown to guests at a party celebrating the firm's 50th anniversary. This YouTube video was also in direct violation with the SEC’s “Testimonial Rule”.
Are you actively monitoring Yelp and YouTube for these type of SEC infractions from your registered advisors?
It can be difficult even knowing where to start. Over 4.6 million businesses are using Yelp. With an ever increasing 163 million Yelp reviews how are you to know if your advisors are actively soliciting testimonials from their clients?
Adding to your monitoring struggle is YouTube. It is estimated that over 300 hours of video are uploaded to YouTube every minute! With over 1 billion daily users how are you to find videos uploaded to YouTube by your registered advisors if they don’t send you the direct links?
Eagle Eye is a solution. With Eagle Eye precision our application will help you quickly identify any social media accounts including Yelp and YouTube that your registered advisors own. Allowing your firm to take action and comply with the SEC’s requirements. Eagle Eye’s automated documentation and screenshots of your findings will help you respond to a regulator.
We’d love to show you more. Contact SiteQuest Technologies today to see how our application can aid in your supervision responsibilities, saving you time and lowering your risk.
Related Article: Trends when it comes to supervising the web.
Related Article: Known Compliance Gaps
Sources: SEC.gov | Investment News
This summer the Securities and Exchange Commission instituted five separate settled fines against two SEC-registered investment advisers, three investment adviser representatives, and a marketing consultant who committed and/or caused violations of the Testimonial Rule under the Investment Advisers Act of 1940 through their use of social media and the internet. (read the entire article)
Several testimonial ads about registered representatives were created and published on social media outlets. Additionally, two videos were created and published online containing client testimonials on its public website and on YouTube.com. The SEC’s regulators found that these firms (and their ads) were in violation of Section 206(4) of the Advisers Act and Rule 206(4)-1(a)(1).
As a compliance supervisor are you aware of what ads your registered advisors are putting online? Are they creating and publishing videos without sending them first to compliance for approval? With all of your responsibilities how do you find the time to continually monitor your advisor’s online presence? Without action, this could leave your firm vulnerable to fines from the SEC or FINRA because of online content you are unaware of.
SiteQuest Technologies’ Eagle Eye application contains industry-leading technology that will help you monitor and discover your advisors’ online presence. Eagle Eye is designed with built-in intelligence that searches and sifts through the web’s billions of pages of clutter bringing only the most relevant results to your attention. Our multi-query processes and dynamically designed algorithms provide more accurate search results for you to quickly review. Our application is loaded with features that automate your monitoring and documentation processes. Our clients have found that Eagle Eye cuts their workload by as much as 80%.
Each of these afore mentioned firms were fined between $35,000 and $10,000 from the SEC. That fine just the tip of the iceberg. There are lawyer fees, employee time spent and resources dealing with the issue, proving to the regulatory agency that the fine has been fixed and that you are now in compliance. There is also the unknown cost to your firm’s reputation.
Eagle Eye is a first of its kind application that is designed specifically to help the financial industry easily and effectively supervise the web. Contact us today to discuss your supervision concerns. We will be able to match our products to your needs.
In January of this year FINRA release it “2018 Regulatory and Examination Priorities Letter”. High-risk firms and rogue brokers were one of the top concerns cited by President and CEO, Robert Cook.
Then on April 30, 2018, FINRA released it Regulatory Notice 18-15 regarding Heightened Supervision. FINRA noted that there are times where heightened supervision of an advisor may be appropriate. This notice stated that “FINRA requires member firms to establish and maintain supervisory systems for each of their associated persons and to test and verify annually that they have established reasonable procedures, including procedures for heightened supervision of associated persons, where necessary.”
In May at FINRA’s Annual Conference there was a discussion regarding the criteria FINRA uses to identify high-risk activity. This discussion noted that FINRA is looking for:
Several times this year FINRA has stressed the importance of “heightened supervision for high-risk brokers”. This should be one of the top priorities for your firm.
Do you have WSPs addressing these issues?
Are they causing you additional time, work, documentation, strain, and monitoring for your supervision department?
Our Eagle Eye application has an innovative “Heighten Supervision Mode”. The flexibility of this application empowers you to monitor your advisors at a variety of levels. For those that push the envelope a heightened level of supervision may be required. Eagle Eye will dig deep and with “Eagle Eye” precision discover and notify you of your advisors’ online presence.
Eagle Eye allows you to customize your supervisory approach without worry, and without additional charges or fees. Contact us today for your personalized demo and we will show you how our “Heightened Supervision Mode” will benefit your firm.
Did you read FINRA’s news release on October 1, 2018, entitled “FINRA Announces Plan to Consolidate Examination and Risk Monitoring Programs”? (Read the full-text news release)
FINRA President and CEO Robert W. Cook said, “By directing our expertise and resources in a more tailored way, we will become more effective at examining for compliance.”
Bari Havlik, who is overseeing this new program said, “Implementing a unified program structure will help make us a more agile and risk-focused regulator.”
So what does this mean for you as a supervisor?
This is a potentially massive shift in focus when it comes to FINRA exams and while it’s early, it appears that exams will now be more comprehensive with a wider area of focus than has been done in the past. Instead of focusing on only trading compliance or financial compliance, exams will likely be broader in nature. This new program is likely to zero-in on the supervision processes your firm has in place beyond the focused scope you’ve been used to.
This consolidation will force firms to dig a deeper into their WSPs and supervision processes including an examination of how they supervise the web.
We have over 15 years of experience in providing leading-edge compliance and web supervision software applications and website monitoring and archiving solutions for the financial industry.
Contact us today. Tell us your concerns when it comes to your “Risk Monitoring Programs” and we will share with you the solutions SiteQuest Technologies has developed for the financial industry.
Recently the Division of Securities, Utah Department of Commerce fined two credit unions and a licensed broker-dealer for failing to supervise the advisors working within the credit unions. (read the full report)
These credit unions are not registered broker-dealers or investment advisors. They entered into a networking agreement with a third-party broker-dealer to provide securities brokerage services to their credit union customers through registered representatives. In this case, the parties involved were not closely monitoring the actions and communications of these advisors with regards to how the advisors and the credit unions branded these services. The “lines were being blurred” and it was not clearly disclosed that these advisors worked for the third-party investment service provider, and not for the credit unions.
The emails, marketing materials, communications in print and electronic were not being supervised and in the view of the regulator, causing confusion with customers being misled. As a result, the broker-dealers and the credit unions were fined $750,000.
FINRA and the SEC are not the only regulatory agencies requiring firms to monitor their advisors. Each state has their own division of securities regulators.
Have you entered into a third-party agreement with another company to provide security brokerage services to their clients? Do you have advisors that are working in the facilities of these partners?
The biggest question of all is, “Are you sufficiently monitoring your advisors and their online presence?”
The use of our Eagle Eye application would have identified where the broker dealers’ presence was online such as social media, blogs, online articles, Yelp, YouTube and more, allowing you to review each URL. Our SQWatcher application would have alerted you to any changes on their websites ensuring that your supervision department could review and approve wording changes before they go live on the web.
We’d love to tell you more. Contact SiteQuest Technologies today to see how our applications can aid in your supervision responsibilities, saving you time and lowering your risk.
About James Cella
James Cella is the President of a growing and innovative compliance technology provider called SiteQuest Technologies. James is a customer-centric individual and focuses on building and sustaining positive and lasting relationship with his clients and partners. James and his family are "super fans" of Utah Football and have attended nearly every home game since 2002. Go Utes!